Exit Strategies

Last Updated: Jun 7, 2019

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A business owner's strategic plan to sell his or her investment in a company. An exit strategy gives a business owner a way to reduce or eliminate his or her stake in the business and, if the business is prosperous, make a substantial profit. If the business is a failure, an exit strategy enables the entrepreneur to limit losses.

So here are the most common exit strategies and considerations these days for planning purposes:

1. Merger & Acquisition (M&A) - Merging with a similar company, or being bought by a larger company. Faster way to grow revenue and can create efficiencies by combining resources.
2. Initial Public Offering (IPO) - This used to be the preferred mode, and the quick way to riches.
3. Sell to a friendly individual - Way to cash out so you can pay investors, pay yourself, take some time off, and get ready to have some fun all over again.
4. Make it your cash cow - If you are in a stable, secure marketplace, with a business that has a steady revenue stream, pay off investors, find someone you trust to run it for you, while you use the remaining cash to develop your next great idea.
5. Liquidation and close - Exit strategy is simply to shutdown, close the business doors, and liquidate.

These same strategies apply to lenders when they are considering the outcome to the lender for loan to business that is experiencing financial difficulty. In the case of a lender, an additional option, a replacement lender, may also be available. Just because the risk parameters associated with a particular loan have become unattractive for the existing lender does not mean that another lender, with a different perspective on risk, is not interested in providing replacement financing.